One Year after Katrina: Where did the money go? Part II

When confronted with evidence that the post-Katrina recovery in the Gulf Coast is failing, one of the most common responses is that "well, the government has spent over $100 billion, what more can it do?"

As we've already shown, a lot of this money didn't get to people in time to be useful. But the other problem is that a lot of it went to the wrong people.

Over $9 billion -- nearly 10% of the total spent on Katrina to date -- has been given to corporate contractors for clean-up and rebuilding work after the storms. Many of the "prime" contracts were given to politically-connected heavy hitters -- KBR/Halliburton, Bechtel, AshBritt, etc. -- and once they took their cut, were sub-contracted down to smaller operations. Lots of the money was skimmed off; much of the work didn't get done.

Full and Open Competition is the Exception, Not the Rule. As of June 30, 2006, over $10.6 billion has been awarded to private contractors for Gulf Coast recovery and reconstruction. Nearly all of this amount ($10.1 billion) was awarded in 1,237 contracts valued at $500,000 or more. Only 30% of these contracts were awarded with full and open competition.

Contract Mismanagement Is Widespread. Hurricane Katrina contracts have been accompanied by pervasive mismanagement. Mistakes were made in virtually every step of the contracting process: from pre-contract planning through contract award and oversight. Compounding this problem, there were not enough trained contract officials to oversee contract spending in the Gulf Coast.

The Costs to the Taxpayer Are Enormous. This report identifies 19 Katrina contracts collectively worth $8.75 billion that have been plagued by waste, fraud, abuse, or mismanagement. In the case of each of these 19 contracts, reports from the Government Accountability Office, Pentagon auditors, agency inspectors general, or other government investigators have linked the contracts to major problems in administration or performance.

In the Institute's recent report, "One Year after Katrina" -- which includes a "Gallery of Disaster Profiteers" -- investigative reporter Jordan Green of Gulf Coast Reconstruction Watch reveals that the money wasted in corporate contracting scandals is over 50 times higher than the highly-publicized fraud alleged to have been perpetrated by individuals, and that wasn't including some of the deals uncovered by Rep. Waxman.

Green's investigative piece reveals some of the more shocking stories, such as the evangelical minister in West Virginia who raked in $5.2 million to set up a base for first responder in St. Bernard Parrish, despite having no disaster relief experience:

"[Lighthouse] billed the entire $5.2 million in advance of beginning work in violation of the contract terms, and upon receipt of the proceeds began spending them at an incredible pace, buying cars and real estate, withdrawing large cash withdrawals, and transferring tens of thousands of dollars to family members," a federal lawsuit would later allege.

Around Oct. 2 Lighthouse finally opened the camp, but that only happened because FEMA brought in firefighters to help Lighthouse finish the job, the government contends. "Even with this assistance, the base camp was not sufficient to perform the contract," the government investigators charge. "While the contract provided for a camp able to house and feed 1,000 emergency workers, the camp was never able to support more than 400 people." The company argues the project's failure is the result of a mix-up in FEMA's orders.

How Heldreth and codefendant Kerry Lynn Farmer got into the hurricane relief business remains unclear. "About the closest thing I have done to this is just organize a youth camp with my church," Heldreth admitted on the PBS program "NewsHour with Jim Lehrer" only two days after the camp opened.

As Gulf Coast Reconstruction Watch has revealed, people have known for years that FEMA's contracting system is broken. A 2004 internal audit had found that the agency had failed to create a database of small and "minority" contractors, mandated in 2001.

The federal government has shown no interest in oversight or management of billions in taxpayer money. But given how close they are to these corporate players, why would they?